An article in Institutional Investor reports that institutions are questioning the value of internal rate of return (IRR), a widely-used measure of portfolio performance.

According to Jos van Gisbergen, who runs private equity at Achmea Investment Management, the accuracy of IRR is compromised by the industry’s increased use of subscription credit lines (to finance transactions before funds ask for capital from their investors). In an interview with II, he said that IRR is a “tool which is highly manipulated” and has “no correlation with the risk taken.”

Van Gisbergen explained that he and other institutions are increasingly turning to the multiple-on-invested-capital metric to track returns: “If you put money into the stock market, the returns accumulate until you cash out. That’s the multiple. That is not the case with an IRR calculation.”  He believes that the metric is intuitive for public market investors and more readily allows comparisons between private and public equity.

While van Gisbergen said that private equity firms will provide this information if investors sign non-disclosure agreements, he’s pushing firms for more transparency and to offer “a range of data to potential allocators.”